Ted Grant

World currency crisis

The creeping sickness of world capitalism as reflected in
the steady inflation of prices in all capitalist countries has finally resulted
in the suspension of the convertibility of dollars into gold by the American government.
This was caused by the staggering balance of payments deficit piled up by
America during the first seven months of this year, $22,000 million or £10,000
million.

British capitalism was in a state of crisis with a balance
of payments deficit of £600 million! American capitalism, despite the erosion
of its position during the last two decades, still remains the world’s most
powerful country, economically, militarily, technologically, diplomatically and
politically. That is why they have been able to maintain the dollar as the
world’s, trading medium in the post-war period, despite staggering deficits
during the last decade.

America imposed the gold exchange standard after the war on
her allies and defeated enemies. The dollar became the medium of international
trade and only the dollar had a direct link to gold, at the rate of $35 to an
ounce of gold. Behind the almighty dollar stood the might of the American
economy and the overflowing coffers of gold stored at Fort Knox. Up to two
thirds of the world’s gold had found its way to these vaults.

Thus American capitalism strode unchallenged on the world
scene. All the capitalist powers were dependent on its bounty. Abusing the
position of the dollar as world money, American capitalism used fictitious dollars
to buy and set up the most modern industries in Western Europe and Britain.
Control or a big interest in the automobile, computer, electronic and plastic
industries in Europe were bought with the worthless dollars printed by the
Americans, without any real backing in production or gold.

Policeman of world undermined

American capitalism used the enormous surplus extracted from
the American working class to finance crushing military expenditure to finance
its wars and the greatest investment overseas in the whole of capitalist
history. The Korean and Vietnamese wars, and the propping up of reactionary
regimes in Europe, Asia, Africa and Latin America cost them tens of thousands
of millions of dollars. The effort to maintain itself as policeman of the world
undermined the power economically of American capitalism. From surpluses in the
first years of the post-war period the budget internally and externally of
American capitalism turned into big deficits. Only a power as rich and powerful
as American capitalism could have maintained the drain on her resources for so
long.

Challenge to America

By using the position of the dollar as world currency, as
the medium of world trade, the American capitalists were enabled to invest and
buy in economically important and strategic industries in Britain and Europe.
At the same time, West European and Japanese industry, nurtured by these same
dollars, began rapidly to recover lost ground and to challenge the established
positions of American capitalism. West Germany and especially Japan, without
the burden of military expenditure (even today Japan spends only 1.3 percent of
her GNP on arms), rapidly developed and began challenging the domination of
American capital, even getting a toe-hold in the gigantic American market itself
in certain products. The other big West European powers, France, Italy and
Britain, also began to challenge the formerly undisputed commercial hegemony of
America.

Wasting the substance produced by the American working class
in the delusion of world supremacy and an “anti-communist” crusade has
undermined the power of American capitalism.

In the present capitalist world economy, any country with an
adverse and persisting balance of payments deficit, rapidly undermines the
basis of its commerce on a world scale. This is reflected in the mystical
“confidence” or rather the lack of it, by means of which the apologists of
capitalism pretend to explain economic and currency crises.

American capitalism is sick. The so-called “British disease”
has been affecting the American economy for the last few years. A balance of
payments deficit, mounting unemployment, now over 6 million, and riding prices
are the symptoms of the disease.

Having rejected Keynesianism which saw in deficit financing
a panacea for capitalist crisis, they turned to another economist, Friedman, to
solve the problem of inflation. The “money supply” was the nostrum of this
quack doctor—“cut the amount of money and prices will fall”. Instead
unemployment increased and prices continued to mount. So back to the old idol!
But this did not improve matters. The American government and the capitalist
class could not understand the real basis of the inflation in the enormous sums
wasted on arms and the Vietnam War, which created enormous amounts of fictitious
capital. The workers in the swollen arms industry and armed forces had to be
fed, clothed and so on, while the capitalists in the arms industry had to get
their share of the total profits. The state raised this money for unproductive
expenditure by taxes on the working class and the economy as a whole. The taxes
were then passed on to the consumers by the capitalists.

This unproductive
expenditure has been one of the main causes of the inflation in America.

Similar processes in other countries plus the flood of
dollars on the world market were some of the main causes of the world
inflation. Externally, America (reduced to reserves of $10,000 million of
gold—still one-fourth of the reserves of the capitalist world) suspended the
convertibility of the dollar to gold, on which the gold exchange standard is
based. American capitalism wishes to devalue its currency by forcing its rivals
to raise the exchange rate of their currency in relation to the dollar—more
dollars for francs, marks, yens, etc. This is one way of increasing the
competitivity of American goods in comparison with those of its rivals, both at
home and abroad.

Measures against working class

The burdens of still the strongest capitalism are to be
unloaded on to their rivals. At the same time, in a complete reversal of
policies, the Tory Nixon, dedicated to the “free working of the market
economy”, has taken measures internally to try and restore the health of
American capitalism. As The Economist
of August 21st remarks “The state, at the highest level, has
intervened…disillusionment with the established economic doctrines that no
longer seem to serve and from discouragement at persistently rising prices and
persistently high unemployment…” plus the staggering trade deficit and the low
level of investment in comparison with previous years, has led to similar
action as in Britain when faced with a similar crisis. The difference lies in
economic and military power. Britain was compelled to accept solutions dictated
by world capitalism. America is imposing her difficulties on her rivals.

At home, the prescription is similar: 90 day freeze on
prices, rents, wages and salaries. No cuts in dividends and profits. The
working class is to bear the brunt of the sacrifices to restore profitability.
To encourage the capitalists to invest, a subsidy of an investment tax credit
of 7 percent, repealed by Nixon in 1969, is restored under another name and
increased to 10 percent. This subsidy is for one year and then reduced to 5
percent.

Who are the speculators?

The personal exemption tax, which was opposed by Nixon, is
now restored, and the 1973 exemption is to be allowed in 1972.

Thus American capitalism tries to restore its profitability
at the expense of the working class and its rivals. Under such circumstances,
the capitalists have no other resources. Their profit being the unpaid labour
of the working class, the workers’ share of the national product must be
reduced.

American capitalism has struck at its rivals. During the
post-war expansionary period, tariffs were reduced and world trade increased,
to the benefit of all the world capitalist powers. The effects of the Dillon
and Kennedy rounds of tariff reductions have been cancelled out by the American
surcharge of 18 percent on goods, especially manufactures. This doubles the
American tariff and applies to half the goods imported into America.

America still remains the world’s biggest market, though
imports and exports involve only about 4 percent to 6 percent of American
production.

Nixon fulminated at “speculators” in dollars and promised
action against them. Who are the speculators, who move from one currency to
another to make a cheap and easy profit “at the expense of currency stability”?
They are the multinational, American and world monopolies, with huge funds at
their disposal. They are the very people who hire Nixon, Heath and other
capitalist politicians to do their bidding.

Capitalist anarchy

The precarious and crazy basis of a society which is
constructed to produce for profit and not for use is indicated by this,
completely interdependent economically, and competitive at the same time, with
the economy based on money dependent on reserves of the yellow metal, gold. The
very act of the Americans in suspending convertibility demonstrates not what even
the Financial Times admits is a
utopia, the “demonetisation of gold”, but its opposite, the dependence on gold.

In the long run, American capitalism will not be able to
prevent a more realistic “price” for the metal which, in capitalist society
“incarnates the social nature of human labour” and becomes money. Apart from
reasons of prestige and the role of the paper dollar, which has replaced gold
as the medium of international trade, there are serious class reasons for the
American capitalists’ objection to this step.

Russia has enormous unknown resources of gold and, with
South Africa, is the biggest producer. The raising of the paper dollar price
would increase her reserves of foreign currency to purchase machinery and other
materials she requires on world markets substantially.

However, this world currency crisis is just the beginning of
a period of instability on the world market; an epoch of storms and stresses
opens up. The Economist of August 21st
comments: “The most retrogressive step in international trade since the war”. One-eighth
of world exports and imports pass through America’s borders!

“Far from uniting the world, or even his own
countrymen, President Nixon’s package has split nation from nation and at home,
class from class.”

That is the verdict of the Sunday Times (22nd August 1971).

“The American action has
really enraged the Europeans. They argue that they are already in heavy deficit
with the US on trade and that the American balance of payments problem is
caused by their large-scale direct investment in Europe.”

An unnamed US Treasury official blusters

“Pressure will grow among protectionists to retain
the surcharge if Japan and the EEC don’t move to change parities…The Europeans
and Japanese only have two choices and I think they know that. They have to
choose between willingness to accept dollars without limits—as they have been
doing—or see some deterioration of their competitive position vis-à-vis the
United States. It is not a pleasant choice, but it is the only realistic choice
that exists.”

Europe on rations

Thus, as Trotsky wrote, in another context, America puts
Europe on “rations”. The trouble with this policy of American imperialism is
that it cannot promote a “stable” economic development. It will promote class
battles in the European countries, as the ruling class tries to shift the
burden on to the working class. The cut in aid of 10 percent to the
“under-developed” countries, coupled with the growing burden of interest
payments and further, deterioration in the terms of trade, guarantees new
upheavals in the colonial world.

In America too, it marks a new phase in the development of
American labour. George Meany, President of the AFL-CIO, hardly a red
revolutionary, has denounced the prices and incomes policy. The strikes of the West
coast dockers and other sections for higher wages have continued. There has
been discussion among trade unionists of a general strike. The politicisation
of the American workers, long delayed, has begun. In the next period, it can
lead to the demand for independent labour politics and moves by the unions for
the formation of a labour party.

The economic measures will not solve the problems of the
American economy. It is sick, with a sickness that the capitalist vulgar
economists are incapable of diagnosing. The expansion of world trade and the
capitalist world economy have reached a new stage. The world market has
expanded and enriched the Western capitalist nations. Now this very process of
interdependence in its recoil will promote the opposite. Nixon, Sato, Heath,
Pompidou, Brandt and Co. are in the grip of economic forces they are incapable
of controlling. Temporarily they will patch up the structures of shaking world
capitalism.

Socialist federation

But the same factors that have produced this crisis—everywhere
inflation and a falling rate of profit will continue. In all the capitalist
nations, incomes policy, is being suggested or operated. American and British
capitalist politicians complain of the “monopoly position” of trade unions and
that “the trade unions are too strong”. In other words, through their unions,
the workers can resist attacks on their standard of living and even have the
temerity to try and improve them.

On a world scale, the organisation of production through a
federation of socialist states would put an end to the nightmare of currency
and economic crises. For world capitalism, the shadow of the coming of severe
economic crises has been cast by the present currency crisis.